Canada U-turn leaves Europe in the lurch on US tech taxes

CNA

a day ago

PARIS: Canada's dropping of a tax on US tech giants under the pressure of Donald Trump is fuelling concern about the future of such levies in other countries, particularly in Europe.
"Currently, about half of all European OECD countries have either announced, proposed, or implemented" a digital services tax pending global action, said the Tax Foundation, a think tank which supports the introduction of such taxes.
But the future of such measures is unclear after the Group of Seven nations agreed Saturday (Jun 28) to exempt US multinational companies from a global minimum tax imposed by other countries.
The move sparked a pointed reaction from Nobel Prize-winning economist Joseph Stiglitz.
"This is about more than trade - it's about whether democratically elected governments can regulate and tax powerful corporations or whether tech billionaires can dictate policy through political proxies," he said.
WHO HAS IMPOSED SUCH A TAX?
Austria, Brazil, Britain, France, India, Italy, Spain and Türkiye are a dozen large countries which have imposed or plan to impose special taxes on big tech firms.
The objective is to force them to pay taxes where they carry out business, as well as to counter the tax optimisation strategies they often practice.
Generally, the taxes target sales revenue and focus essentially on US firms like Alphabet (Google), Amazon, Apple, Facebook (Meta) and Microsoft.
But they differ from one country to another in terms of sales that are taxed, with some targeting advertising revenue and others targeting sales of data.
"Most of the proposed or adopted rates are in the 2-5 per cent range," of the revenue stream targeted, according to analysts at the Canadian Tax Foundation.
Most nations adopted the taxes pending a global agreement which would see multinational companies pay some taxes in countries where they operate, but the prospects for such a deal now look bleak.
WHAT THESE TAXES GENERATE
The taxes tend to raise more money year after year, according to the latest data from the EU Tax Observatory, which dates from June 2023.
Britain, France, India, Italy and Türkiye have seen steady increases in the revenue their taxes generate.
Both Britain and France raised approximately US$1.1 billion last year via their digital services taxes.
Italy saw its revenue from the tax jump by 90 per cent from 2021 to over $530 million last year, according to local media.
But Spain, which hoped to raise more than a billion per year via its tax, only raised around US$350 million in 2023, according to La Vanguardia daily.
OTHER DOMINOES TO FALL?
Before Canada, India had already halted in April its six per cent tax on online advertising by foreign firms against the background of trade talks with the United States.
The taxes may fall elsewhere.
While Britain has reached a trade deal with the United States to avoid the worst tariffs, it wants to go further and has refused to rule out a modification or elimination of its digital services tax.
EU nations so far haven't indicated that the tax is on the table.
A German government spokesman said Monday that Canada's dropping its tech tax had "absolutely no bearing" on Berlin's position as it considers it considers its tax policies.
But worries remain.
National digital service taxes are "vulnerable to economic and political threats - particularly from the US, which has historically protected its digital multinationals from fair taxation abroad," said the Tax Justice Network, a coalition of researchers and activists.